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Cape Town – SA household real net wealth increased to R7.3trn in 2017, 451.6bn higher than reported in 2016. However, the wealth inequality gap still persists as 72.2% of this wealth is owned by the top 20% household income earners.

This is according to the Momentum/Unisa Household Net Wealth Index for 2017 which was released on Wednesday. The real value of household wealth is the difference between the real value of assets and liabilities. Assets include retirement funds, other financial investments and residential buildings. Liabilities include outstanding credit and debts.

The report shows that households accumulated more financial assets in the second half of 2017 and managed their levels of borrowing, the report explained. The growth in wealth is the first yearly increase reported since 2014.

Overall, household assets increased from R8.2trn in 2016 to R8.7trn in 2017. This is up 5.9%, the biggest percentage increase since 2012.

In turn, Momentum/Unisa estimated that the real value of South African households’ debt increased by R32.7bn to R1.4trn between 2016 and 2017. This is a real increase of 2.4%.

Wealth inequality

“Despite the increase in households’ real net wealth during 2017, not all households shared equally in this positive development,” the report read.

According to financial wellness research, the top 20% household income earners own 72.2% of households’ net wealth. The top 10% of households which earn an annual income of more than R506 188 own more than half (51.2%) of the wealth. The bottom 20% only own 2.7% of households' net wealth.

“This is not surprising though, given that income is unequally distributed in South Africa,” the report read. “Net wealth is a function of how households use their income.”

According to the report the top 20% household income group may not appear to be very wealthy. They earn between R20 000 and R45 000 per month. This group of income earners have to contend with financial challenges like paying higher income taxes, paying off debt using proportion of their income, higher prices for transport, education and medical care and higher food prices.

“A lot of households in the top 20% do not possess sufficient financial assets/net wealth to retire financially well off or to take care of emergency expenses when the unexpected happens,” the report read.

The research also showed that wealth is skewed to favour those with higher education. “Households with a tertiary education possess 51.6% of total income, 57.8% of net wealth and 59.2% of assets, while they are also responsible for 66.2% of all outstanding liabilities.”

Those with a tertiary education also seem to make more effective use of their income by allocating it towards growing their wealth, reporting 51.6% of total income and 57.8% of net wealth. Households with a less than completed tertiary education reported 21.1% of total income, but only 15.2% of net wealth.

“In many cases the households with a less than completed secondary education are earning a small income and therefore don’t have the earning capacity to convert their income into wealth,” the report read.

The report also indicated that in comparison to international countries, South Africa will need two decades of uninterrupted growth, as was seen in 2017, to catch up with developed countries.

South Africa is currently in the same wealth category as Finland, Greece, Hungary and South Korea.